Fair, Reasonable and Non-Discriminatory (FRAND) Terms: A Challenge for Competition Authorities

Abstract

Standards contribute to increase welfare to the extent that they reduce production costs and increase products' value to consumers. The adoption of a standard can however raise competition concerns. After the adoption of the standard, the chosen technology may lack effective substitutes. The owner of an intellectual property (IP) right essential to the technology may indeed use the additional market power that may be gained through standardization (competitors being absent ex-post) to charge higher prices to 'locked-in' licensees. To mitigate such a hold-up risk, standard setting organizations usually require patent holders to disclose their relevant IP rights ex-ante and/or to commit to license IP on fair, reasonable and non-discriminatory (FRAND) terms. This paper suggests a methodology to assess whether FRAND commitments are violated, from a competition perspective. The proposed methodology extends the framework proposed by Madero and Banasevic (2008) by outlining four necessary conditions for an ex-post licensing behaviour to be considered anti-competitive, in violation of FRAND commitments.

Keywords: intellectual property rights, standard setting, competition, FRAND, hold-up

JEL Classification: K21, L40, L43